FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________________
Commission file number 0-28740
MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Clearbrook Road, Elmsford, NY 10523
(Address of principal executive offices)
(914) 460-1600
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
On May 10, 1999, there were outstanding 18,771,689 shares of the Company's
common stock, $.0001 par value per share ("Common Stock").
<PAGE>
INDEX
Page Number
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
March 31, 1999 (unaudited) and December 31, 1998 3
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 5
Notes to the Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 16
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 17
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Exhibit Index 20
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,753 $ 4,495
Investment securities 8,875 11,694
Receivables, less allowance for doubtful accounts of $2,185 and $2,239
at March 31, 1999 and December 31, 1998, respectively 57,164 64,747
Inventory 1,024 1,187
Prepaid expenses and other current assets 901 857
--------- ---------
Total current assets 71,717 82,980
Other investments 2,317 2,311
Property and equipment, net 6,159 4,823
Due from affiliates, less allowance for doubtful accounts of $403
at March 31, 1999 and December 31, 1998, respectively 14 34
Other assets, net 165 293
Deferred income taxes 274 270
Intangible assets, net 19,145 19,395
--------- ---------
Total assets $ 99,791 $ 110,106
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 463 $ 277
Current portion of long-term debt 387 208
Accounts payable 5,243 6,926
Claims payable 23,133 32,855
Payables to plan sponsors and others 20,721 16,490
Accrued expenses 6,193 6,401
--------- ---------
Total current liabilities 56,140 63,157
Capital lease obligations, net of current portion 1,135 598
Long-term debt, net of current portion 1,842 6,185
Commitments and contingencies
Minority interest 1,112 1,112
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.0001 par value; 40,000,000 shares authorized,
18,651,698 and 18,090,748 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 2 2
Treasury stock at cost (338) --
Additional paid-in capital 91,611 91,603
Accumulated deficit (50,186) (50,790)
Stockholder notes receivable (1,527) (1,761)
--------- ---------
Total stockholders' equity 39,562 39,054
--------- ---------
Total liabilities and stockholders' equity $ 99,791 $ 110,106
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended
March 31,
----------------------
1999 1998
----------------------
(Unaudited)
Revenue $ 74,915 $ 97,963
Cost of revenue 66,733 92,384
-------- --------
Gross profit 8,182 5,579
Selling, general and administrative expenses 7,512 4,450
Amortization of goodwill and other intangibles 250 --
-------- --------
Income from operations 420 1,129
Interest income, net 196 507
Other (12) --
-------- --------
Net income $ 604 $ 1,636
======== ========
Basic income per common share $ 0.03 $ 0.12
======== ========
Diluted income per common share $ 0.03 $ 0.11
======== ========
Weighted average common shares used in computing
basic income per share 18,422 13,369
======== ========
Weighted average common shares used in computing
diluted income per share 18,910 15,132
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4
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MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities: (unaudited)
Net income $ 604 $ 1,636
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation, amortization and other 626 361
Stock option charges 4 7
Changes in assets and liabilities:
Receivables 7,583 (11,076)
Inventory 163 --
Prepaid expenses and other current assets (44) 56
Accounts payable (1,683) (564)
Deferred revenue -- (2,799)
Claims payable (9,722) 2,483
Payables to plan sponsors and others 4,231 1,110
Accrued expenses (212) (690)
-------- --------
Net cash provided by (used in) operating activities 1,550 (9,476)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (784) (487)
Loans to affiliates, net 20 --
Stockholder loans, net 234 (12)
Purchase of investment securities -- (4,000)
Maturities of investment securities 2,819 10,293
Decrease (increase) in other assets 127 (43)
-------- --------
Net cash provided by investing activities 2,416 5,751
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (210) (53)
Net payments to debt (4,164) --
Proceeds from exercise of stock options 4 1
Purchase of treasury stock (338) --
-------- --------
Net cash used in financing activities (4,708) (52)
-------- --------
Net decrease in cash and cash equivalents (742) (3,777)
Cash and cash equivalents--beginning of period $ 4,495 $ 9,593
-------- --------
Cash and cash equivalents--end of period $ 3,753 $ 5,816
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ --
======== ========
Interest $ 86 $ 19
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ 933 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of MIM
Corporation and subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission (the
"Commission"). Pursuant to such rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management, all adjustments considered necessary for
a fair presentation of the financial statements, primarily consisting of normal
recurring adjustments, have been included. The results of operations and cash
flows for the three months ended March 31, 1999 are not necessarily indicative
of the results of operations or cash flows which may be reported for the
remainder of 1999.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements, notes
and information included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed with the Commission (the "Form 10-K").
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 to the consolidated financial statements
included in the Form 10-K.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share
and diluted earnings per share:
Three Months
Ended March 31,
1999 1998
------- -------
Numerator:
Net income $ 604 $ 1,636
======= =======
Denominator:
Weighted average number of common shares outstanding 18,422 13,369
------- -------
Basic earnings per share $ .03 $ .12
======= =======
Denominator:
Weighted average number of common shares outstanding 18,422 13,369
Common share equivalents of outstanding stock options 488 1,763
------- -------
Total shares outstanding 18,910 15,132
------- -------
Diluted earnings per share $ .03 $ .11
======= =======
NOTE 3 - COMMITMENTS AND CONTINGENCIES
On March 31, 1999, the State of Tennessee and Xantus Healthplan of
Tennessee, Inc. ("Xantus") entered into a consent decree whereby, among other
things, the Commissioner of Commerce and Insurance for the State of Tennessee
was appointed receiver of Xantus for purposes of rehabilitation. At this time,
the Company is unable to predict the effects of this action on the Company's
ability to collect monies owed to it by Xantus for pharmacy benefit management
("PBM") services rendered by the Company from January 1, 1999 through April 1,
1999. As of April 1, 1999, Xantus owed the Company $10.7 million. To date, the
Company has withheld from its pharmacy providers approximately $4.0 million of
claims
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submitted by them on behalf of Xantus members as permitted by the Company's
agreements with these pharmacy providers. State of Tennessee officials have
publicly indicated that the State will ensure that all TennCare providers
negatively impacted by the appointment of the receiver for Xantus will
eventually receive from Xantus or the State at least 50% of all outstanding
amounts owed by Xantus to such providers as of April 1, 1999. The Company can
give no assurance that Xantus or the State will eventually pay any or all of
these amounts. The failure of the Company to collect from Xantus or the State
all or a substantial portion of the monies owed to it by Xantus would have a
material adverse effect on the Company's financial condition and results of
operations. The receiver has begun to pay the Company on behalf of Xantus for
services rendered to Xantus and its members following April 1, 1999.
NOTE 4 - SUBSEQUENT EVENT
In April 1999, the Company loaned to the Chairman and Chief Executive
Officer of the Company $1,700, evidenced by a promissory note and a pledge of
1,500 shares of Common Stock to secure his obligations under the promissory
note. The note requires repayment of principal and interest by March 31, 2004.
Interest is accrued monthly at the Prime Rate (as defined in the note) then in
effect. The loan was approved by the Company's Board of Directors in order to
provide funds with which the Chairman could pay the tax liability associated
with the exercise of stock options representing 1,500 shares of Common Stock in
January 1998.
As part of the Company's normal review process, the Company determined that
two of the Company's capitated TennCare(R) contracts were not achieving
profitability projections. Accordingly, in accordance with the terms of these
contracts, the Company exercised its right to terminate these contracts
effective on September 28, 1999. Representatives of the Company and these
TennCare managed care organizations are presently renegotiating these contracts.
While the Company believes it is reasonably likely that the terms of the
contracts can be renegotiated, no assurance can be given that the Company will
successfully renegotiate the contracts with either or both of these customers.
In addition, no assurance can be given that the Company will not incur losses
under either or both of these contracts during the interim period until
termination becomes effective. The Company does not believe that the loss of
these contracts, if they cannot be renegotiated, would have a material adverse
effect on its liquidity.
* * * *
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Form 10-K, as well as the unaudited consolidated
interim financial statements and the related notes thereto included in Part I,
Item 1 of this Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999 filed with the Commission (this "Report").
This Report contains statements not purely historical and which may be
considered forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding the Company's expectations, hopes, intentions or strategies
regarding the future, as well as statements which are not historical fact.
Forward looking statements may include statements relating to the Company's
business development activities, its' sales and marketing efforts, the status of
material contractual arrangements including the negotiation or re-negotiation of
such arrangements, future capital expenditures, the effects of regulation and
competition on the Company's business, future operating performance of the
Company and the results, the benefits and risks associated with integration of
acquired companies, the effect of year 2000 problems on the Company's operations
and/or effect of legal proceedings or investigations and/or the resolution or
settlement thereof. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors. These factors
include, among other things, risks associated with risk-based or "capitated"
contracts, increased government regulation related to the health care and
insurance industries in general and more specifically, pharmacy benefit
management organizations, increased competition from the Company's competitors,
including competitors with greater financial, technical, marketing and other
resources, and the existence of complex laws and regulations relating to the
Company's business. This Report along with the Company's Form 10-K contain
information regarding important factors that could cause such differences. The
Company does not undertake any obligation to publicly release the results of any
revisions to these forward looking statements that may be made to reflect any
future events and circumstances.
Overview
RxCare of Tennessee, Inc. ("RxCare"), a pharmacy services administrative
organization owned by the Tennessee Pharmacists Association and representing
approximately 1,250 retail pharmacies, initially retained the Company in 1993 to
assist in obtaining contracts with managed care organization's ("MCO's")
applying to participate in the TennCare program to provide pharmacy benefit
management ("PBM") services to those MCO's and their TennCare eligible and
commercial recipients. In January 1994, the State of Tennessee instituted its
TennCare program by contracting with MCO's to provide mandated health services
to TennCare beneficiaries on a capitated basis. In turn, certain of these MCO's
contracted with RxCare to provide TennCare mandated pharmaceutical benefits to
their TennCare beneficiaries through RxCare's network of retail pharmacies, in
most cases on a corresponding capitated basis.
From January 1994 through December 31, 1998, the Company provided a broad
range of PBM services with respect to RxCare's TennCare, TennCare Partners, the
TennCare behavioral health program, and commercial PBM business under an
agreement with RxCare (the "RxCare Contract"). Under the RxCare Contract, the
Company performed essentially all of RxCare's obligations under its PBM
contracts with plan sponsors, including designing and marketing PBM programs and
services. Under the RxCare Contract, the Company paid certain amounts to RxCare
and shared with RxCare the profit, if any, derived from services performed under
RxCare's contracts with the plan sponsors.
The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of the Company's relationship with
RxCare, among other things, allowed the Company to directly market its services
to Tennessee customers, including those MCO's and commercial
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customers then serviced by the Company through the RxCare Contract, prior to its
expiration. The RxCare Contract had previously prohibited the Company from
soliciting and/or marketing its PBM services in Tennessee other than on behalf
of, and for the benefit of, RxCare. The Company's marketing efforts after its
negotiated settlement resulted in the Company executing agreements, effective as
of January 1, 1999, to provide PBM services directly to five of the six TennCare
MCO's representing approximately 900,000 of the 1.2 million TennCare lives
previously managed under the RxCare Contract, as well as substantially all third
party administrators ("TPA's") and employer groups previously managed under the
RxCare Contract. Effective May 1, 1999, the Company entered into a contract with
the sixth TennCare MCO representing approximately 300,000 TennCare lives,
thereby contracting with all of the TennCare MCO's that the Company managed
through the RxCare Contract prior to December 31, 1998. To date, the Company has
not contracted with the two TennCare behavioral health organizations ("BHO's")
to which it previously provided PBM services under the RxCare Contract as the
State presently administers the pharmacy benefit for these BHO's. For the year
ended December 31, 1998, amounts paid to the Company by these BHO's represented
approximately 27% of the Company's revenues.
A majority of the Company's revenues are derived from providing PBM
services in the State of Tennessee to MCO's participating in the State of
Tennessee's TennCare program. At March 31, 1999, the Company provided PBM
services to 140 health plan sponsors with an aggregate of approximately 1.7
million plan members, of which TennCare represented health plans with
approximately 900,000 plan members. The five TennCare contracts accounted for
47.4% of the Company's revenues for the three months ended March 31, 1999 and
76.0% of the Company's revenues for the three months ended March 31, 1998. With
the addition of the sixth TennCare MCO as of May 1, 1999, the Company
anticipates that approximately 45% of its revenues for fiscal 1999 will be
derived from providing PBM services to these six TennCare MCO's.
Results of Operations
Three months ended March 31, 1999 compared to three months ended March 31, 1998
For the three months ended March 31, 1999, the Company recorded revenue of
$74.9 million, a decrease of $23.1 million from the same period a year ago.
TennCare contracts accounted for decreased revenues of $38.9 million as the
Company did not retain contracts as of January 1, 1999 with the sixth TennCare
MCO and the two TennCare BHO's it previously managed under the RxCare Contract.
The loss of these contracts represents $17.6 million and $23.6 million,
respectively, of the decrease in revenue, partially offset by increases in other
TennCare contracts. Commercial revenue increased $8.9 million, partially offset
by a decrease of $8.5 million due to the loss of a contract with a Nevada based
managed care organization, representing a net increase of $.4 million in
commercial revenue. Revenue increased $15.4 million as a result of the Company's
acquisition in August 1998 of the operations of Continental Managed Pharmacy
Services Inc. ("Continental").
For the three months ended March 31, 1999, approximately 17% of the
Company's revenues were generated from capitated or other risk-based contracts,
compared to 39% for the three months ended March 31, 1998. This decrease
resulted from the loss, as of January 1, 1999, of a major contract with on of
the TennCare MCO's the Company managed on a capitated basis throughout 1998
under the RxCare Contract, as well as the addition of other business through the
Company's acquisition of Continental.
Cost of revenue for the three months ended March 31, 1999 decreased $25.7
million from $92.4 million to $66.7 million compared to the same period a year
ago. TennCare contracts accounted for $36.4 million of such decrease due to the
loss as of January 1, 1999 of the sixth TennCare MCO and the two TennCare BHO's
previously managed under the RxCare Contract until December 31, 1998. The loss
of these contracts represents $16.2 million and $22.2 million, respectively, of
the decrease, partially offset by increases in other TennCare contracts. Cost of
revenue increases of $6.7 million from commercial business were completely
offset by a decrease in cost of revenue of $8.5 million due to the loss of a
contract with a Nevada based managed care organization, representing a net
decrease of $1.8 million. Such decreases in cost of revenue were partially
offset by increases of $12.5 million generated from Continental. As a percentage
of revenue, cost of revenue decreased to 89.1% for the three months ended
March 31, 1999
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from 94.3% for the three months ended March 31, 1998 primarily due to the
contribution of Continental's drug distribution business which has experienced
better margins than historically experienced by the Company's core PBM line of
business.
Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability of the
Company to restrict its MCO clients' formularies to the extent anticipated by
the Company at the time contracted PBM services are implemented, thereby
resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. Management does not
believe that there is an overall trend towards losses on its existing capitated
contracts.
Selling, general and administrative expenses were $7.5 million for the
three months ended March 31, 1999, an increase of $3.0 million as compared to
$4.5 million for the three months ended March 31, 1998. The acquisition of
Continental accounted for $2.5 million of the increase. The remaining $0.5
million increase in expenses reflects expenditures incurred in connection with
the Company's continuing commitment to enhance its ability to manage efficiently
pharmacy benefits by investing in additional personnel and information systems
to support new and existing customers and increased legal costs. As a percentage
of revenue, selling, general and administrative expenses increased to 10.0% for
the three months ended March 31, 1999 from 4.5% for the three months ended March
31, 1998 mainly attributable to revenue decrease experienced from the loss of
the three TennCare contracts (as discussed above).
For the three months ended March 31, 1999, the Company recorded
amortization of goodwill and other intangibles of $0.3 million in connection
with its acquisition of Continental. The Continental acquisition resulted in the
recording of approximately $18.5 million of goodwill and $1.2 million of other
intangible assets, which will be amortized over their estimated useful lives (25
years for goodwill and 6 years and 4 years for other intangible assets).
For the three months ended March 31, 1999, the Company recorded interest
income, net of interest expense, of $0.2 million. Interest income was $0.3
million, a decrease of $0.2 million from the same period a year ago, resulting
from a reduced level of invested capital due to the additional working capital
needs of the Company. See "Liquidity and Capital Resources."
For the three months ended March 31, 1999, the Company recorded net income
of $.6 million, or $.03 per diluted share. For the three months ended March 31,
1998, the Company recorded net income of $1.6 million, or $.11 per diluted
share.
For the three months ended March 31, 1999, accounts receivable decreased
$7.5 million to $57.2 million from $64.7 million from December 31, 1998. The
decrease resulted primarily from a proportionate decrease in PBM business during
the period.
Liquidity and Capital Resources
The Company utilizes both funds generated from operations, if any, and funds
raised in its initial public offering (the "Offering") for capital expenditures
and working capital needs. For the three months ended March 31, 1999, net cash
provided from operating activities totaled $1.6 million, due mainly to a
decrease in accounts receivable of $7.6 million and an increase in payables to
plan sponsors of $4.2 million partially offset by a decrease in claims payable
of $9.7 million. The decrease in accounts receivable resulted primarily from a
proportionate decrease in PBM business. Payables to plan sponsors increased due
to changes in contractual terms, whereby the Company incurred additional sharing
obligations upon contract renegotiations effective January 1, 1999. Claims
payable decreased due primarily to the loss as of January 1, 1999 of the three
TennCare contracts discussed above.
Investing activities generated $2.4 million primarily from proceeds of
maturities of investment securities of $2.8 million. This cash provided was
partially offset by purchases of $.8 million of equipment primarily to upgrade
and enhance information systems necessary to strengthen and support the
Company's
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ability to manage its customer's PBM programs and to be competitive in the PBM
industry. Financing activities used $4.7 million of cash primarily from a
decrease in revolving debt of $4.2 million.
At March 31, 1999, the Company had working capital of $15.6 million,
including $8.9 million in investment securities, compared to $19.8 million at
December 31, 1998. Cash and cash equivalents decreased to $3.8 million at March
31, 1999 compared with $4.5 million at December 31, 1998. The Company had
investment securities held to maturity of $8.9 million at March 31, 1999 and
$11.7 million at December 31, 1998. The decrease in cash and investment
securities was due to the Company's increased working capital requirements. With
the exception of the Company's $2.3 million preferred stock investment in Wang
Healthcare Information Systems, Inc., the Company's investments are primarily
corporate debt securities rated AA or higher and government securities.
Effective January 1, 1999, the Company began to provide PBM services
directly to five of the six TennCare MCO's representing 900,000 of the 1.2
million TennCare lives previously managed under the RxCare Contract. Effective
May 1, 1999, the Company entered into a contract with the sixth TennCare MCO
representing approximately 300,000 TennCare lives, thereby contracting with all
of the TennCare MCO's that the Company managed through the RxCare Contract prior
to December 31, 1998. To date, however, the Company has not contracted with
either of the two TennCare BHO's for which it previously provided PBM services
under the RxCare Contract as the State presently administers the pharmacy
benefit for these BHO's. The Company does not believe that the loss of these
contracts will have a material adverse effect on its liquidity.
As part of the Company's normal review process, the Company determined that
two of the Company's capitated TennCare contracts were not achieving
profitability projections. Accordingly, in accordance with the terms of these
contracts, the Company exercised its right to terminate these contracts
effective on September 28, 1999. Representatives of the Company and these
TennCare MCO's are presently renegotiating these contracts. While the Company
believes it is reasonably likely that the terms of the contracts can be
renegotiated, no assurance can be given that the Company will successfully
renegotiate the contracts with either or both of these customers. In addition,
no assurance can be given that the Company will not incur losses under either or
both of these contracts during the interim period until termination becomes
effective. The Company does not believe that the loss of these contracts, if
they cannot be renegotiated, would have a material adverse effect on its
liquidity.
On March 31, 1999, the State of Tennessee and Xantus Healthplan of
Tennessee, Inc. ("Xantus") entered into a consent decree whereby, among other
things, the Commissioner of Commerce and Insurance for the State of Tennessee
was appointed receiver of Xantus for purposes of rehabilitation. At this time,
the Company is unable to predict the effects of this action on the Company's
ability to collect monies owed to it by Xantus for PBM services rendered by the
Company from January 1, 1999 through April 1, 1999. As of April 1, 1999, Xantus
owed the Company $10.7 million. To date, the Company has withheld from its
pharmacy providers approximately $4.0 million of claims submitted by them on
behalf of Xantus members as permitted by the Company's agreements with these
pharmacy providers. State of Tennessee officials have publicly indicated that
the State will ensure that all TennCare providers negatively impacted by the
appointment of the receiver for Xantus will eventually receive from Xantus or
the State at least 50% of all outstanding amounts owed by Xantus to such
providers as of April 1, 1999. The Company can give no assurance that Xantus or
the State will eventually pay any or all of these amounts. The failure of the
Company to collect from Xantus or the State all or a substantial portion of the
monies owed to it by Xantus would have a material adverse effect on the
Company's financial condition and results of operations. The receiver has begun
to pay the Company on behalf of Xantus for services rendered to Xantus and its
members following April 1, 1999.
In April 1999, the Company loaned to the Chairman and Chief Executive
Officer of the Company $1.7 million, evidenced by a promissory note and a pledge
of 1.5 million shares of Common Stock to secure his obligations under the
promissory note. The note requires repayment of principal and interest by March
31, 2004. Interest is accrued monthly at the Prime Rate (as defined in the note)
then in effect. The loan was approved by the Company's Board of Directors in
order to provide funds with which the Chairman could pay the tax liability
associated with the exercise of stock options representing 1.5 million shares of
Common Stock in January 1998.
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Under Section 145 of the Delaware General Corporation Law ("Section 145")
and the Company's Amended and Restated By-Laws ("By-Laws"), the Company is
obligated to indemnify two former officers of the Company (one of which is also
a former director and still a principal stockholder of the Company) who are the
subject of the indictments brought in the United States District Court for the
Western District of Tennessee (as more fully described in the Form 10-K), unless
it is ultimately determined by the Company's Board of Directors that these
former officers failed to act in good faith and in a manner they reasonably
believed to be in the best interests of the Company, that they had reason to
believe that their conduct was unlawful of for any other reason under which
indemnification would not be required Section 145 or the By-Laws. In addition,
until the Board makes such a determination, the Company is also obligated under
Section 145 and its By-Laws to advance the costs of defense to such persons;
however, if the Board determines that either or both of these former officers
are not entitled to indemnification, such individuals would be obligated to
reimburse the Company for all amounts so advanced. The Company is not presently
in a position to assess the likelihood that either or both of these former
officers will be entitled to such indemnification and continued advancement of
defense costs or to estimate the total amount that it may have to pay in
connection with such obligations or the time period over which such amounts will
have to be advanced. No assurance can be given, however, that the Company's
obligations to either or both of these former officers would not have a material
adverse effect on the Company's results of operations or financial condition.
At December 31, 1998, the Company had, for tax purposes, unused net
operating loss ("NOL") carryforwards of approximately $47 million which will
begin expiring in 2008. As it is uncertain whether the Company will realize the
full benefit from these NOL carryforwards, the Company has recorded a valuation
allowance equal to the deferred tax asset generated by the carryforwards. The
Company assesses the need for a valuation allowance at each balance sheet date.
The Company has undergone a "change in control" as defined in the Internal
Revenue Code of 1986, as amended ("Code"), and the rules and regulations
promulgated thereunder. The amount of NOL carryforwards that may be utilized in
any given year will be subject to a limitation as a result of this change. The
annual limitation approximates $2.7 million. Actual utilization in any year will
vary based on the Company's tax position in that year.
As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company expects to spend approximately
$1.7 million on capital expenditures during fiscal 1999 (no substantial portion
of which was expended in the first quarter of 1999) primarily for expansion and
continued upgrading of information systems. The Company believes that it has
sufficient cash on hand or available to fund the Company's anticipated working
capital and other cash needs for at least the next 12 months.
The Company may also pursue joint venture arrangements, business
acquisitions and other strategic transactions and arrangements designed to
expand its business, which the Company would expect to fund from cash on hand or
future indebtedness or, if appropriate, the sale or exchange of equity
securities of the Company.
Other Matters
The Company's pharmaceutical claims costs historically have been subject to
significant increases from October through February, which the Company believes
is due to the need for increased medical attention to, and intervention with,
MCO's members during the colder months. The resulting increase in pharmaceutical
costs impacts the profitability of capitated contracts or other risk-based
arrangements. Risk-based business represented approximately 17% of the Company's
revenues while non-risk business (including the provision of mail order
services) represented approximately 83% of the Company's revenues for the three
months ended March 31, 1999. Non-risk arrangements mitigate the adverse effect
on profitability of higher pharmaceutical costs incurred under risk-based
contracts. The Company presently anticipates that approximately 36% of its
revenues in fiscal 1999 will be derived from risk-based arrangements.
Changes in prices charged by manufacturers and wholesalers or distributors
for pharmaceuticals, a component of pharmaceutical claims, have historically
affected the Company's cost of revenue. The
12
<PAGE>
Company believes that it is likely that prices will continue to increase which
could have an adverse effect on the Company's gross profit. To the extent such
cost increases adversely effect the Company's gross profit, the Company may be
required to increase contract rates on new contracts and upon renewal of
existing contracts. However, there can be no assurance that the Company will be
successful in obtaining these rate increases. The higher level of non-risk
contracts with the Company's customers in 1999 compared to prior years mitigates
the adverse effects of price increases, although no assurance can be given that
the recent trend towards no-risk arrangements will continue.
Year 2000 disclosure
The so-called "year 2000 problem," which is common to many companies,
concerns the inability of information systems, primarily computer hardware and
software programs, to recognize properly and process date sensitive information
following December 31, 1999. The Company has committed substantial resources
(approximately $2.6 million) over the past two years to improve its information
systems ("IS project"). The Company has used this IS project as an opportunity
to evaluate its state of readiness, estimate expected costs and identify and
quantify risks associated with any potential year 2000 issues.
State of Readiness:
In evaluating the Company's potential exposure to the year 2000 problem,
management first identified those systems that were critical to the ongoing
business of the Company and that would require significant manual intervention
should those systems be unable to process dates correctly following December 31,
1999. Those systems were the Company's claims adjudication and processing system
and the internal accounting system (which includes pharmacy reimbursement). Once
those systems were identified, the following steps were identified as those that
would be required to be taken to ascertain the Company's state of readiness:
I. Obtaining letters from software and hardware vendors concerning the ability
of their products to properly process dates after December 31, 1999;
II. Testing the operating systems of all hardware used in the identified
information systems to determine if dates after December 31, 1999 can be
processed correctly;
III. Surveying other parties who provide or process information in electronic
format to the Company as to their state of readiness and ability to process
dates after December 31, 1999; and
IV. Testing the identified information systems to confirm that they will
properly recognize and process dates after December 31, 1999.
The Company (excluding for purposes of this year 2000 discussion only,
Continental) has completed Step I. The Company will continue to obtain letters
from new hardware and software vendors. The Company is currently in the process
of implementing Step II. The Company has begun testing its operating systems,
and where appropriate software patches have been acquired. Any software or
hardware determined to be non-compliant will be modified, repaired or replaced.
Installation of patches and full operating systems testing is anticipated to be
completed during the second quarter of 1999. The Company cannot estimate the
costs of such modifications, repairs and replacements at this time, but does not
believe that the costs of such modifications, repairs or replacements will be
material. The Company will disclose the results of its testing and attempt to
further quantify this estimate in future periodic reports following its
completion of Step II.
With respect to Step III above, the Company has engaged in discussions with
the third party vendors that transmit data from member pharmacies and based upon
such discussions it believes that such third party vendors' systems will be able
to properly recognize and process dates after December 31, 1999. The Company is
in the process of surveying member pharmacies in its network as to their ability
to transmit data correctly to such third party vendors and anticipates
completing this survey during the second quarter of 1999. Once this survey is
complete, the Company will evaluate any additional steps required to allow
member pharmacies to transmit data after December 31, 1999 and will disclose
such additional steps, if any, and their related costs in future periodic
reports.
13
<PAGE>
With respect to Step IV above, the Company intends to perform a
comprehensive year 2000 compliance test of the claims adjudication and
processing systems as part of the next regularly scheduled disaster recovery
drill, which is currently planned for June 1999. This date has been postponed
from the previously scheduled March 1999 test in order to incorporate software
upgrades during the second quarter of 1999. The Company's internal accounting
and other administrative systems generally have been internally developed during
the last few years or are presently being developed. Accordingly, in light of
the fact that such systems were developed with a view to year 2000 compliance,
the Company fully expects that these systems will be able to properly recognize
and process dates after December 31, 1999. The Company intends to test these
systems for year 2000 compliance as part of the disaster recovery drill
described above.
Continental's computer systems related to the delivery of pharmaceutical
products through mail order were upgraded in the fourth quarter of 1998 to
become year 2000 compliant. All internal systems at Continental are scheduled to
be compliant by the end of the third quarter of 1999.
Costs:
As noted above, the Company spent approximately $2.6 million over the past
two years to improve its information systems. In addition, the Company
anticipates that it will spend approximately $1.7 million during 1999 to further
improve its information systems. These improvements were not, and are not
intended to specifically address the year 2000 issue, but rather to address
other business needs and issues. Nonetheless, the IS project has provided the
Company with a platform from which to address any year 2000 issues. Management
does not believe that the amount of funds expended in connection with the IS
project would have differed materially in the absence of the year 2000 problem.
The Company's cash on hand as a result of the Offering has provided all of the
funds expended to date on the IS project and is expected to provide
substantially all of the funds expected to be spent during 1999 on the IS
project.
Risks:
On July 29, 1998, the Commission issued Release No. 33-7558 (the "Release")
in an effort to provide further guidance to reporting companies concerning
disclosure of the year 2000 problem. In this Release the Commission required
that registrants include in its year 2000 disclosure a description of its "most
reasonably likely worst case scenario." Based on the Company's assessment and
the results of remediation performed to date as described above, the Company
believes that all problems related to the year 2000 will be addressed in a
timely manner so that the Company will experience little or no disruption in its
business immediately following December 31, 1999. However, if unforeseen
difficulties arise, if the Company's assessment of Continental uncovers
significant problems (which is not presently expected to occur) or if compliance
testing is delayed or necessary remediation efforts are not accomplished in
accordance with the Company's plans described above, the Company anticipates
that its "most reasonably likely worst case scenario" (as required to be
described by the Release) is that some percentage of the Company's claims would
need to be processed manually for some limited period of time. At this point in
time, the Company cannot reasonably estimate the number of pharmacies or the
level of claims involved or the costs that would be incurred if the Company were
required to hire temporary staff and incur other expenses to manually process
such claims. The Company expects to be better able to quantify the number of
pharmacies and level of claims involved as well as the related costs following
its completion of the survey of member pharmacies in the second quarter of 1999
and presently intends to disclose such estimates in future periodic reports. In
addition, the Company anticipates that all businesses (regardless of their state
of readiness), including the Company, will encounter some minimal level of
disruption in its business (e.g., phone and fax systems, alarm systems, etc.) as
a result of the year 2000 problem. However, the Company does not believe that it
will incur any material expenses or suffer any material loss of revenues in
connection with such minimal disruptions.
Contingency Plans:
As discussed above, in the event of the occurrence of the "most reasonably
likely worst case scenario" the Company would hire an appropriate level of
temporary staff to manually process the pharmacy claims
14
<PAGE>
submitted on paper. As discussed above, at this time the Company cannot
reasonably estimate the number of pharmacies or level of claims involved or the
costs that would be incurred if the Company were required to hire temporary
staff and incur other expenses to manually process such claims. While some level
of manual processing is common in the industry and while manual processing
increases the time it takes the Company to pay the member pharmacies and invoice
the related payors, the Company does not foresee any material lost revenues or
other material expenses in connection with this scenario. However, an extended
delay in processing claims, making payments to pharmacies and billing the
Company's customers could materially adversely impact the Company's liquidity.
In addition, while not part of the "most reasonably likely worst case
scenario," the delay in paying such pharmacies for their claims could result in
adverse relations between the Company and the pharmacies. Such adverse relations
could cause certain pharmacies to drop out of the Company's networks which in
turn could cause the Company to be in breach under service area provisions under
certain of its services agreements with its customers. The Company does not
believe that any material relationship with any pharmacy will be so affected or
that any material number of pharmacies would withdraw from the Company's
networks or that it will breach any such service area provision of any contract
with its customers. Notwithstanding the foregoing, based upon past experience,
the Company believes that it could quickly replace any such withdrawing pharmacy
so as to prevent any breach of any such provision. The Company cannot presently
reasonably estimate the possible impact in terms of lost revenues, additional
expenses or litigation damages or expenses that could result from such events.
Forward Looking Statements:
Certain information set forth above regarding the year 2000 problem and the
Company's plans to address those problems are forward looking statements under
the Securities Act and the Exchange Act. See the first paragraph in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of forward looking statements and related risks and
uncertainties. In addition, certain factors particular to the year 2000 problem
could cause actual results to differ materially from those contained in the
forward looking statements, including, without limitation: failure to identify
critical information systems which experience failures, delays and errors in the
compliance and remediation efforts described above, unexpected failures by key
vendors, member pharmacies, software providers or business partners to be year
2000 compliant or the inability to repair critical information systems in the
time frames described above. In any such event, the Company's results of
operations and financial condition could be materially adversely affected. In
addition, the failure to be year 2000 compliant of third parties outside of the
Company's control such as electric utilities or financial institutions could
adversely effect the Company's results of operations and financial condition.
* * * *
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that interest rate risk represents the only market
risk exposure applicable to the Company. The Company's exposure to market risks
associated with changes in interest rates relates primarily to the Company's
investments in marketable securities in accordance with the Company's corporate
investment policies and guidelines. All of these instruments are classified as
"held-to-maturity" on the Company's consolidated balance sheets and were entered
into by the Company solely for investment purposes and not for trading purposes.
The Company does not invest in or otherwise use derivative financial
instruments. The Company's investments consist primarily of corporate debt
securities, corporate preferred stock and State and local governmental
obligations, each rated AA or higher. The table below presents principal cash
flow amounts and related weighted average effective interest rates by expected
(contractual) maturity dates for the Company's financial instruments subject to
interest rate risk:
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
Short-term investments
Fixed rate investments 8,850 -- -- -- -- --
Weighted average rate 6.57% -- -- -- -- --
Long-term investments:
Fixed rate investments -- -- -- -- -- --
Weighted average rate -- -- -- -- -- --
Long-term debt:
Variable rate instruments 112 312 1,773 -- -- --
Weighted average rate 9.00% 9.00% 7.78% -- -- --
In the table above, the weighted average interest rate for fixed and
variable rate financial instruments in each year was computed utilizing the
effective interest rate at March 31, 1999 for that instrument multiplied by the
percentage obtained by dividing the principal payments expected in that year
with respect to that instrument by the aggregate expected principal payments
with respect to all financial instruments within the same class of instrument.
At March 31, 1999, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable and payables to plan
sponsors and others approximate fair value due to their short-term nature.
Because management does not believe that its exposure to interest rate
market risk is material at this time, the Company has not developed or
implemented a strategy to manage this market risk through the use of derivative
financial instruments or otherwise. The Company will assess the significance of
interest rate market risk from time to time and will develop and implement
strategies to manage that risk as appropriate.
* * * *
16
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On March 31, 1999, the State of Tennessee and Xantus Healthplan of
Tennessee, Inc. ("Xantus") entered into a consent decree whereby, among other
things, the Commissioner of Commerce and Insurance for the State of Tennessee
was appointed receiver of Xantus for purposes of rehabilitation. At this time,
the Company is unable to predict the effects of this action on the Company's
ability to collect monies owed to it by Xantus for pharmacy benefit management
services rendered by the Company from January 1, 1999 through April 1, 1999. As
of April 1, 1999, Xantus owed the Company $10.7 million. To date, the Company
has withheld from its pharmacy providers approximately $4.0 million of claims
submitted by them on behalf of Xantus members as permitted by the Company's
agreements with these pharmacy providers. State of Tennessee officials have
publicly indicated that the State will ensure that all TennCare providers
negatively impacted by the appointment of the receiver for Xantus will
eventually receive from Xantus or the State at least 50% of all outstanding
amounts owed by Xantus to such providers as of April 1, 1999. The Company can
give no assurance that Xantus or the State will eventually pay any or all of
these amounts. The failure of the Company to collect from Xantus or the State
all or a substantial portion of the monies owed to it by Xantus would have a
material adverse effect on the Company's financial condition and results of
operations. The receiver has begun to pay the Company on behalf of Xantus for
services rendered to Xantus and its members following April 1, 1999.
Item 2. Changes in Securities and Use of Proceeds
From August 14, 1996 through March 31, 1999, the $46,788,000 net proceeds
from the initial public offering (the "Offering"), pursuant to a Registration
Statement assigned file number 333-05327 by the Securities and Exchange
Commission and declared effective by the Commission on August 14, 1996, have
been applied in the following approximate amounts:
Construction of plant, building and facilities .............. $ --
Purchase and installation of machinery and equipment ........ $ 5,069,000
Purchases of real estate .................................... $ --
Acquisition of other business ............................... $ 2,341,000
Repayment of indebtedness ................................... $ --
Working capital ............................................. $26,750,000
Temporary investments:
Marketable securities .................................. $ 8,875,000
Overnight cash deposits ................................ $ 3,753,000
To date, the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
which was described more fully in the Offering prospectus and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. At the time of
the Offering, however, as disclosed in the Offering prospectus and subsequent
Forms SR, the Company intended to apply approximately $18.6 million of Offering
proceeds to fund an expansion of the "preferred generics" program. The Company
has determined not to apply any material portion of the Offering proceeds to
fund any expansion of this program. The Company presently intends to use the
remaining Offering proceeds to support the continued growth of its PBM and mail
order business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the first quarter of fiscal 1999.
17
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
10.58 Commercial Term Promissory Note, dated April 14, 1999, by
Richard H. Friedman in favor of MIM Corporation
10.59 Pledge Agreement, dated April 14, 1999, by Richard H. Friedman
in favor of MIM Corporation
10.60 Amended and Restated 1996 Non-Employee Directors Stock
Incentive Plan (effective as of March 1, 1999)
10.61 1999 Cash Bonus Plan for Key Employees
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the first quarter of
fiscal 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIM CORPORATION
Date: May 17, 1999 /s/ Edward J. Sitar
-----------------------------------
Edward J. Sitar
Chief Financial Officer
(Principal Financial Officer)
19
<PAGE>
Exhibit Index
(Exhibits being filed with this Quarterly Report on Form 10-Q)
10.58 Commercial Term Promissory Note, dated April 14, 1999, by Richard H.
Friedman in favor of MIM Corporation
10.59 Pledge Agreement, dated April 14, 1999, by Richard H. Friedman in favor
of MIM Corporation
10.60 Amended and Restated 1996 Non-Employee Directors Stock Incentive Plan
(effective as of March 1, 1999)
10.61 1999 Cash Bonus Plan for Key Employees
27 Financial Data Schedule
COMMERCIAL TERM PROMISSORY NOTE
$1,700,000.00 April 14, 1999
Elmsford, New York
FOR VALUE RECEIVED, the undersigned (the "Maker", whether one or more),
hereby unconditionally promise(s) to pay to the order of MIM CORPORATION
("Payee"), at Payee's offices located at 100 Clearbrook Road, Elmsford, New York
10523, or such other office as the holder hereof may designate, in lawful money
of the United States, the principal sum of One Million Seven Hundred Thousand
and No/100 Dollars ($1,700,000.00), together with interest thereon as provided
for below.
1. Payment of Principal. Maker shall pay the entire principal amount hereof on
March 31, 2004.
2. Interest Rate; Payment of Interest. Maker shall pay interest on the unpaid
principal balance hereof outstanding from time to time at a rate per annum equal
to the Prime Rate (as defined below) in effect from time to time. All such
interest shall be due on March 31, 2004. Anything contained in this Note to the
contrary notwithstanding, during any period in which an Event of Default (as
defined below) is continuing, the interest rate hereunder shall, at the option
of the Payee, be increased to a rate per annum equal to the rate which would
otherwise apply plus two (2) percent per annum, and all interest accruing at
such rate shall be payable upon demand by the Payee. "Prime Rate" shall mean the
rate of interest per annum announced from time to time by The Chase Manhattan
Bank (or its successor) as its prime rate in effect at its principal office in
New York City (the prime rate of interest not being intended to be the lowest
rate of interest charged by such bank in connection with extensions of credit).
Interest shall commence to accrue on the date hereof and shall continue to
accrue until the principal hereof is paid in full (whether before or after
maturity or judgment).
Anything contained in this Note to the contrary notwithstanding, the Payee
does not intend to charge and the Maker shall not be required to pay interest or
other charges in excess of the maximum rate permitted by applicable law. Any
payments in excess of such maximum shall be refunded to Maker or credited
against principal.
3. Prepayment. Maker may prepay the principal hereof, in whole or in part at any
time without penalty or premium. All such prepayments shall, unless the Payee
otherwise agrees, be applied in inverse order of maturity.
4. Expenses. Maker shall pay the Payee, on demand, for all reasonable costs and
expenses, including, but not limited to, reasonable attorneys' fees, incurred in
the collection of this Note.
5. Default; Acceleration. The occurrence of any of the following shall
constitute an "Event of Default":
<PAGE>
-2-
a. Maker shall fail to make any payment of any principal, interest or
other amount when due or fail to perform any or observe any term or
provision of this Note and, in any case, such failure shall continue
for a period of ten (10) calendar days.
b. Any event of default or default shall occur under any pledge or other
security agreement or other related document executed by the Maker in
favor of Payee.
c. Maker or any endorser or guarantor hereof shall die (if an individual)
or be dissolved (if an entity) and the unpaid principal balance of
this Note and all accrued and unpaid interest hereunder shall not be
paid in full within one hundred eighty (180) calendar days after such
death or dissolution (provided, however, that nothing contained herein
shall be interpreted or construed to limit the right of the holder
hereof to file a claim (with respect to the indebtedness of the Note)
against the estate of the decedent Maker, endorser or guarantor, as
the case may be, during (or after) such 180 day period); or shall make
an assignment for the benefit of creditors; or shall have a receiver,
custodian, trustee or conservator appointed for all or substantially
all its assets.
d. Any case or proceeding under any bankruptcy, insolvency, receivership
or similar law affecting Maker or any endorser or guarantor shall be
commenced.
e. Any representation or warranty of Maker contained in this Note or any
related document shall prove to be untrue or misleading in any
material respect.
f. Maker's employment with Payee shall terminate for any reason
whatsoever, whether or not for cause and whether terminated by Payee
or Maker and the unpaid principal balance of this Note and all accrued
and unpaid interest hereunder shall not be paid in full within one
hundred eighty (180) calendar days after the date of termination.
Upon the occurrence, and at any time during the continuance of an Event of
Default, Payee, at Payee's option and without the need for presentment, demand,
protest, or other notice of any kind, may declare all unpaid principal hereof
and interest hereunder to be immediately due and payable and same shall become
immediately due and payable upon such declaration.
7. Certain Waivers. Maker and any endorser or guarantor hereof (collectively,
the "Obligors") and each of them (i) waive(s) presentment, diligence, protest,
demand, notice of acceptance or reliance, notice of non-payment, notice of
dishonor, notice of protest and all other notices to parties in connection with
the delivery, acceptance, performance, default or enforcement of this Note, any
endorsement or guaranty of this Note, or any collateral or other security; (ii)
consent(s) to any and all delays, extensions, renewals or other modifications
with respect to this Note, any related document or the debt(s) or collateral
evidenced hereby or thereby or any waivers of any term hereof or thereof, any
release, surrender, taking of additional, substitution, exchange, failure to
perfect, record, preserve, realize upon, or lawfully dispose of, or any other
impairment of, any collateral or other security, or any
<PAGE>
-3-
other failure to act by the Payee or any other forbearance or indulgence shown
by the Payee, from time to time and in one or more instances (without notice to
or assent from any of the Obligors) and agree(s) that none of the foregoing
shall release, discharge or otherwise impair any of their liabilities; (iii)
agree(s) that the full or partial release or discharge of any Obligor(s) shall
not release, discharge or otherwise impair the liabilities of any other
Obligor(s); and (iv) otherwise waive(s) any other defenses based on suretyship
or impairment of collateral.
8. Jury Waiver. THE MAKER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR
OUT OF, OR OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH, THIS NOTE AND/OR
ANY RELATED DOCUMENT.
9. Binding Nature. This Note shall bind the Maker and Maker's heirs,
representatives, successors and assigns and shall inure to the benefit of the
Payee, its successors and assigns. The term "Payee" as used herein shall
include, in addition to the initial Payee, any successors, endorsees, or other
assignees of such Payee and shall also include any other holder of this Note.
10. Governing Law. This Note shall be governed by and construed and interpreted
in accordance with the laws the State of New York, without regard to its rules
pertaining to conflicts of laws thereunder.
11. Miscellaneous. No delay or omission by the Payee in exercising any right or
remedy hereunder or under any guaranty hereof shall operate as a waiver of such
right or remedy or any other right or remedy; and a waiver on one occasion shall
not be a bar to or waiver of any right or remedy on any other occasion. All
rights and remedies of the Payee hereunder, any other applicable document and
under applicable law shall be cumulative and not in the alternative. No
provision of this Note or any guaranty hereof may be waived or modified orally
but only by a writing signed by the party against whom enforcement of such
amendment, waiver or other modification is sought.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note as of
the day and year first written above.
Maker:
/s/ Richard H. Friedman
- --------------------------
Richard H. Friedman
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Pledge Agreement") dated as of April 14, 1999
is made by Richard H. Friedman (the "Pledgor"), an individual residing at 2
Palmer Place, Armonk, New York 10504, in favor of MIM Corporation, a Delaware
corporation (the "Secured Party"), with an office at 100 Clearbrook Road,
Elmsford, New York 10523.
W I T N E S S E T H :
WHEREAS, Pledgor is the record and beneficial owner of 1,500,000 shares of
the common stock, par value $.0001 per share (the "Common Stock") of the Secured
Party; and
WHEREAS, simultaneously with the execution and delivery of this Pledge
Agreement, the Pledgor is executing and delivering to the Secured Party a
Commercial Term Promissory Note dated of even date herewith, in the original
principal amount of $1,700,000.00 (such Note, as the same may be amended,
supplemented or otherwise modified from time to time, and any note or instrument
given in or evidencing a substitution, refinancing, refunding, replacement,
extension or exchange of or for such Note, being collectively referred to herein
as the "Promissory Note") evidencing a commercial $1,700,000.00 term loan (the
"Loan"); and
WHEREAS, to induce the Pledgee to make the Loan, the Pledgor promised to
pledge the aforesaid 1,500,000 shares as security for the payment of the
Promissory Note.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby agrees with the Secured Party as follows:
1. Defined Terms. The following terms shall have the following meanings as
used herein:
"Business Day": any day other than Saturday or Sunday or other day in which
banks are authorized to be closed in the State of New York.
"Code": the Uniform Commercial Code as from time to time in effect in the
State of New York.
"Collateral": all of Pledgor's right, title and interest in, to or under
any of the following:
(i) all of the stock described in Schedule I attached hereto and hereby
made a part hereof;
<PAGE>
(ii) all dividends (cash or non-cash) and all other distributed stock
rights, subscription rights, warrants, interest, cash, instruments,
new securities, security entitlements and all other property to which
the Pledgor now or hereafter becomes entitled by reason of its
interest in any or all of the foregoing;
(iii) all substitutions, additions, replacements, rollovers, splits,
products and accessions for, of and/or to any of the foregoing;
(iv) all cash and non-cash proceeds of all of the foregoing;
(v) any and all stock certificates or other instruments or other writings
evidencing any stock or other securities referred to in clauses (i)
through (iii) above; and
(vi) any and all other property (tangible or intangible) identified herein
as additional collateral.
"Default": any event which with the giving of notice or passage of time, or
both, would become an Event of Default.
"Event of Default": the occurrence of any of the following (whether or not
an event or circumstance is mentioned once or more than once):
(i) any "Event of Default" as defined in the Promissory Note;
(ii) any representation or warranty made by the Pledgor hereunder proves to
have been false or misleading in any material respect when given;
(iii) any default by the Pledgor in the observance or performance of
Sections 5(b), 5(e) or 5(g) hereof; or
(iv) any default by the Pledgor in the observance or performance of any
other covenant or agreement set forth herein and such default shall
continue unremedied for a period of thirty (30) calendar days after
the earlier to occur of (i) written notice of such default shall have
been given to the Pledgor by the Secured Party of such default or (ii)
the Pledgor becoming actually aware of such default.
"Lien": any security interest, mortgage, lien, pledge, charge, title
retention agreement, hypothecation, levy, execution, seizure, attachment,
garnishment, voting agreement, assignment or other encumbrance.
"Loan to Collateral Value Ratio": at any particular time, the ratio of (a)
the sum of (i) the then outstanding principal amount of the Promissory Note
plus (ii) the then accrued and unpaid interest under the Promissory Note to
(b) the fair market value (to be determined by the Secured Party on the
basis of the then applicable quoted price on the stock exchange on which
the capital stock of the Secured Party is traded, or, if such
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quotation(s) is/are not available for any reason, on a basis to be
determined by the Secured Party in its good faith discretion) of the then
remaining Specified Pledged Stock owned by the Pledgor and for which
certificates (and accompanying duly executed stock powers in blank) have
been delivered to and are then in the possession of the Secured Party and
in which the Secured Party has a first priority secured interest.
"Obligations": all indebtedness, liabilities, covenants and duties of, all
terms and conditions to be observed by, and all other obligations of the
Pledgor under the Promissory Note and this Pledge Agreement, whether now
existing or hereafter arising, including without limitation all principal,
interest, and reasonable costs and expenses (including without limitation
reasonable attorneys fees) under the Promissory Note.
"Person": any individual, corporation, partnership, trust or unincorporated
organization, a government or any agency or political subdivision thereof,
or other entity.
"Pledge Agreement": this Pledge Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Proceeds": proceeds of every kind, nature and description and in whatever
form (whether cash or non-cash) including, but not limited to, any and all
dividends or other income from the Specified Pledged Stock or other
collateral and collections thereon or distributions with respect thereto.
"Specified Pledged Stock": as defined in Schedule I hereto.
2. Grant of Security Interest. The Pledgor hereby delivers to the Secured
Party all the Specified Pledged Stock and hereby grants to the Secured Party a
first priority security interest in the Collateral, as collateral security for
the full and prompt payment, performance and observance when due (whether due at
the stated maturity, by demand, acceleration or otherwise) of the Obligations.
3. Stock Powers. Pledgor shall cause any and all certificates or other
instruments or other writings at any time representing or evidencing any of the
Collateral to be immediately delivered to the Secured Party along with undated
stock powers (or other appropriate indorsements) covering such certificates,
instruments or other writings duly executed in blank by the Pledgor with, if the
Secured Party so requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and warrants
that:
(a) The Pledgor has not created any restrictions on transferability (other
than those created under this Agreement) with respect to the Collateral;
(b) the Pledgor is the legal and beneficial owner of, and has good and
marketable title to, the Specified Pledged Stock listed, free of any and all
Liens or options in favor of, or claims of, any other Person, except for the
Lien created by this Pledge Agreement;
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(c) The security interest granted pursuant to this Pledge Agreement will
constitute a valid, perfected first priority security interest in the
Collateral, enforceable as such against the Pledgor and all other parties; and
(d) This Pledge Agreement is the legal, valid and binding obligation of the
Pledgor, enforceable against Pledgor in accordance with its terms, and the
execution, delivery and performance of this Pledge Agreement by the Pledgor does
not and will not violate any applicable law, or any agreement, instrument or
order applicable to the Pledgor or any of Pledgor's property; and
(e) The Pledgor's residence is located at 2 Palmer Place, Armonk, New York
10504, and the Pledgor's principal place of business is located at 100
Clearbrook Road, Elmsford, New York 10523.
5. Covenants. The Pledgor covenants and agrees with the Secured Party that,
from and after the date of this Pledge Agreement until the Obligations are paid
in full:
(a) If the Pledgor shall, now or hereafter, as a result of Pledgor's
ownership of any of the Specified Pledged Stock or the other Collateral, become
entitled to receive or shall receive any shares of stock (including, without
limitation, any shares of capital stock representing a stock dividend or a
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), or any
other distributed stock rights, subscription rights, warrants, interest, cash
(other than those cash dividends which the Pledgor is permitted to receive under
Section 6), instruments, new securities, security entitlements or any other
property, or any substitutions of, additions to, replacements for, rollovers,
splits, products and/or accessions for, of and/or to, or otherwise with respect
to, any Collateral, the Pledgor shall accept any and all of the same as the
agent of the Secured Party, hold the same in trust for the Secured Party and
deliver (to the extent same are certificated or otherwise evidenced by a
writing) any and all certificates, other instruments or other writings
evidencing same forthwith to the Secured Party in the exact form received, duly
endorsed by the Pledgor to the Secured Party, if required, together with an
undated stock power(s) covering same duly executed in blank by the Pledgor and
with, if the Secured Party so requests, signature guaranteed, any and all of the
foregoing to be held by the Secured Party as additional collateral security for
the Obligations. Any sums paid upon or in respect of the Specified Pledged Stock
(or any other Collateral) upon the liquidation or dissolution of the Secured
Party (including without limitation any liquidating dividend) shall be paid over
to the Secured Party to be held by it hereunder as additional collateral
security for the Obligations, and in case any distribution of capital shall be
made on or in respect of the Specified Pledged Stock (or any other Collateral)
or any property (cash or non-cash) shall be distributed upon or with respect to
the Specified Pledged Stock (or any other Collateral) pursuant to the
recapitalization or reclassification of the capital of the Secured Party or
pursuant to the reorganization thereof, the property so distributed shall be
delivered to the Secured Party to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Specified Pledged Stock (or any other
Collateral) shall be received by the Pledgor, the Pledgor shall, until such
money or property is paid or delivered to the Secured Party, hold such money or
property in trust for the Secured Party, segregated from other funds of the
Pledgor, as additional collateral security for the Obligations.
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(b) Without the prior written consent of the Secured Party, the Pledgor
will not directly or indirectly create, incur or permit to exist any Lien or
option in favor of, or any claim of any Person with respect to, any of the
Collateral or any interest therein, except for the Lien provided for by this
Pledge Agreement and any other Liens in favor of the Secured Party. The Pledgor
will defend the right, title and interest of the Secured Party in and to the
Collateral against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of the
Secured Party, and at the sole expense of the Pledgor, the Pledgor will promptly
and duly execute and/or deliver such Uniform Commercial Code financing
statements and such further instruments and other documents and take such
further actions as the Secured Party may request to perfect its security
interest in any and all Collateral, or may otherwise reasonably request for the
purposes of obtaining or preserving the full benefits of this Pledge Agreement
and of any and all of the rights, remedies and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper shall be immediately delivered to the Secured
Party, duly endorsed in a manner satisfactory to the Secured Party, to be held
as additional collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Secured Party harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Pledge Agreement or the
exercise by the Secured Party of any of its rights, remedies or powers
hereunder.
(e) Subject to the proviso set forth in this sentence, the Pledgor shall
not sell, transfer, assign or otherwise dispose of the Collateral; provided,
however, that the Secured Party hereby agrees that Secured Party shall, at the
written request of the Pledgor, release from time to time up to an aggregate of
300,000 shares (as adjusted, if applicable, for any stock split or reverse stock
split, combination or the like) of Common Stock from the Lien of this Pledge
Agreement (and the Pledgor shall, after such release, have the right to retain
and/or sell or otherwise dispose of the released Collateral) if all of the
following conditions are satisfied:
(i) no Event of Default or Default has occurred and is continuing
immediately prior to, nor shall any Event of Default or Default result
from, such release;
(ii) the Loan to Collateral Value Ratio during the entire ninety (90) day
period immediately prior to such release, and the Loan to Collateral
Value Ratio immediately after such release, is no greater than 1.0 to
2.0; and
(iii) the Pledgor has given to the Secured Party prior written notice of
Pledgor's intent to request any such release and such prior written
notice is given no less than 10 and no more than 45 Business Days
prior to the proposed date of release.
(f) [RESERVED]
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(g) In the event Pledgor shall move his residence or principal place of
business, he shall (i) attempt to give the Secured Party prior written notice
thereof and (ii) in any event give to the Secured Party, within 10 calendar days
after such move, written notice of such move.
6. Voting Rights; Dividends. Unless an Event of Default shall have occurred
and be continuing, the Pledgor shall be permitted to receive non-liquidating
cash dividends paid on the Collateral and to exercise all voting and corporate
rights with respect to the applicable Collateral, provided, however, that
Pledgor covenants to the Secured Party that no vote shall be cast or corporate
right exercised or other action taken by Pledgor which, in the Secured Party's
reasonable judgment, would impair the Collateral or which would be inconsistent
with or result in any violation of any provision of any agreement or instrument
relating to any Obligation, including without limitation the Promissory Note,
this Pledge Agreement, or any other financing document contemplated by the
Promissory Note. The Secured Party, if an Event of Default shall have occurred
or be continuing, shall have the right to receive and hold as additional
collateral any dividends or other distributions on the Specified Pledged Stock
or other Collateral and, in the event that the Pledgor shall be delivered or
otherwise have received (or be entitled to receive) any such dividends or other
distributions, Pledgor shall hold same in trust for, and immediately turn over
same to, the Secured Party who may hold same as part of the Collateral
hereunder; provided, that, the Secured Party shall also have the right (whether
or not an Event of Default then exists) to receive and hold as Collateral any
liquidating dividend.
7. Rights of the Secured Party. (a) If any Event of Default shall occur and
be continuing, (A) any and all shares of the Specified Pledged Stock and any
other applicable Collateral may, at the Secured Party's option, be registered in
the name of the Secured Party or its nominee, and/or (B) the Secured Party or
its nominee may exercise (i) all voting, corporate and any other rights
pertaining to any and all Collateral, whether at any meeting of shareholders of
the Secured Party or otherwise and/or (ii) any and all rights of conversion,
exchange, subscription and any other rights, privileges or options pertaining to
any and all Collateral as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Specified Pledged Stock (and any other applicable Collateral) upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the Secured Party, or upon the exercise by the
Pledgor or the Secured Party of any right, privilege or option pertaining to
such shares of the Specified Pledged Stock (and any other applicable
Collateral), and in connection therewith, the right to deposit and deliver any
and all of the Specified Pledged Stock (and any other applicable Collateral)
with any committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine), all without
liability to the Pledgor, but the Secured Party shall have no duty to the
Pledgor to exercise any of the foregoing rights, privileges or options and shall
not be responsible for any failure to do so or delay in so doing.
(b) The rights of the Secured Party under this Agreement shall not be
conditioned or contingent upon the pursuit by the Secured Party of any right or
remedy against any other Person or against the Collateral or any other security
or collateral. The Secured Party shall have no obligation or duty (and shall not
be liable for any failure) to demand, collect, apply or realize upon all or any
part of the Collateral or for any delay in doing so, to collect or to sell or
otherwise dispose of any
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Collateral (whether upon the request of the Pledgor or any other Person or
otherwise and whether or not an Event of Default has occurred or the value of
the Collateral has (or may) increase or decrease), to advise the Pledgor of any
actual or anticipated changes in the value of the Collateral, to act as an
investment advisor or insurer of any of the Collateral, to preserve rights
against prior parties, to protect Collateral (except, with respect to Collateral
in its possession, as specifically set forth in Section 11 below), to take any
other action whatsoever with regard to the Collateral or any part thereof, or to
seek payment from any particular source, and any such obligation or duty is
hereby waived to the fullest extent permitted by applicable law.
8. Remedies. If an Event of Default shall occur and be continuing, the
Secured Party may exercise, in addition to all other rights, remedies and powers
granted in this Pledge Agreement or in any other instrument or agreement, all
rights, remedies, and powers whether as a secured party or otherwise, under the
Code or other applicable law. Without limiting the generality of the foregoing,
the Secured Party, without the need for demand of payment or other performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Pledgor or
any other Person (all of which demands, defenses, advertisements and notices are
hereby waived), may at any and all times demand, sue for, collect, receive,
issue entitlement orders (without Pledgor's consent), and/or exercise all
options and other rights under or with respect to, and/or appropriate and/or
realize upon or otherwise deal with, any or all of the Collateral, and/or make
any settlement or compromise which the Secured Party reasonably deems desirable
with respect to any or all Collateral, and/or sell, assign, give an option or
options to purchase or otherwise dispose of and deliver any and all of the
Collateral (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Secured Party or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Secured Party shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold (and in so
purchasing the Secured Party may apply towards the purchase price the unpaid
amount of any Obligations) . The Secured Party shall have the right to apply any
Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping by the Secured Party (or any
agent or representative of the Secured Party) of any of the Collateral or in any
way relating to the Collateral or the rights, remedies or powers of the Secured
Party hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Secured Party, to the payment of any and all of
the Obligations (whether matured or unmatured), in such order and manner as the
Secured Party may elect, and only after such application and after the payment
by the Secured Party of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Secured
Party account for the surplus, if any, to the Pledgor. To the extent permitted
by applicable law, the Pledgor waives all claims, damages and demands it may
acquire against the Secured Party arising out of the exercise by the Secured
Party of any rights, remedies or powers hereunder except to the extent that such
claims, damages or demands arise from the gross negligence or willful misconduct
of the Secured Party. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, ten (10) calendar days prior written notice
of the time and place of any public sale or of the time after which
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any private sale or other intended disposition is to be made shall be deemed
reasonable. The Pledgor shall remain fully liable for any deficiency if the
proceeds of any sale or other disposition or any application of the Collateral
are insufficient to pay the Obligations and the costs and expenses of the
Secured Party. Nothing contained in this Agreement shall be interpreted or
construed so as to require the Secured Party to realize upon the Collateral
prior to attempting to collect any of the Obligations, and the Secured Party may
exercise all of its various rights, remedies and powers in such order and manner
as Secured Party, in its discretion, shall deem advisable.
9. Private Sales. (a) The Pledgor recognizes that the Secured Party may be
unable to effect a public sale of any or all the Specified Pledged Stock (or
other applicable Collateral), by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise (including
without limitation the impracticability of such a public sale due to the value
of the Specified Pledged Stock or otherwise), and may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers which will
be obliged to agree, among other things, to acquire such securities for their
own account for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Secured Party shall be under no obligation to delay a sale of any of the
Specified Pledged Stock (or other Collateral) for the period of time necessary
to permit the registration of such securities for public sale under the
Securities Act, or under applicable state securities laws.
(b) The Pledgor further agrees to use Pledgor's best efforts to do or cause
to be done all such other acts as may be necessary to make any sale or sales of
all or any portion of the Specified Pledged Stock (or other Collateral) pursuant
to this Pledge Agreement valid and binding and in compliance with any and all
other applicable requirements of law. The Pledgor further agrees that a breach
of any of the covenants contained in this Section 9 will cause irreparable
injury to the Secured Party, that the Secured Party has no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 9 shall be specifically enforceable against
the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred.
10. Certain Waivers. The Pledgor waives (i) diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Pledgor with respect to the Obligations or any other obligations or liabilities
of the Pledgor to the Secured Party and (ii) the benefit of any marshalling
doctrine with respect to the Secured Party's exercise of its rights, remedies or
powers hereunder or otherwise.
11. Limitation on Duties Regarding Collateral. The Secured Party's sole
duty with respect to the custody, safekeeping and physical preservation and
protection of the Collateral in its possession, under Section 9-207 of the Code
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar securities and property for its own account. Neither the
Secured Party nor any of its officers, employees or agents shall be (i) liable
or responsible for any
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failure to demand, exercise any options or rights with respect to, notify the
Pledgor of any conversions, splits, calls or similar matter, collect or realize
upon any of the Collateral or for any delay in doing so or for any change in the
value of any Collateral (whether before or after an Event of Default) or (ii)
under any obligation to sell or otherwise dispose of any Collateral, whether
upon the request of the Pledgor or otherwise.
12. Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.
13. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in such jurisdiction, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and shall not affect the
construction hereof or be taken into consideration in the interpretation hereof.
15. No Waiver; Cumulative Remedies; Waivers and Amendments.
(a) The Secured Party shall not by any act (except by a written instrument
executed and delivered by the Secured Party in accordance with subparagraph (b)
below), delay, indulgence, omission or otherwise be deemed to have waived any
right, remedy or power hereunder or to have acquiesced in any Event of Default.
No failure to exercise, nor any delay in exercising, on the part of the Secured
Party, any right, remedy or power shall operate as a waiver thereof. No single
or partial exercise of any right, remedy or power hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, remedy or
power. A waiver by the Secured Party of any right, remedy or power hereunder on
any one occasion shall not be construed as a bar to any right, remedy or power
which the Secured Party would otherwise have on any future occasion. The rights,
remedies and powers of the Secured Party herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights,
remedies or powers provided by applicable law or any other agreement, instrument
or other document. Secured Party may exercise any or all such rights, remedies
and powers at any time(s) in any order which Secured Party chooses.
(b) None of the terms or provisions of this Pledge Agreement may be
amended, waived, supplemented or otherwise modified except by a written
instrument executed and delivered by the party sought to be charged.
16. Successors and Assigns. This Pledge Agreement shall be binding upon the
successors, assigns, heirs and representatives of the Pledgor and shall inure to
the benefit of the Secured Party and its successors and assigns. Pledgor shall
not, without the prior written consent of the Secured Party, assign any of his
rights or obligations hereunder.
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17. Notices. Notices by one party to the other shall be in writing and may
be given by certified mail, by overnight mail sent by Federal Express or other
nationally recognized overnight courier, or delivery by hand, addressed to such
party at the address set forth in the first paragraph hereof and shall be deemed
given (a) in the case of certified mail, four (4) Business Days after being
deposited in the mail, first class postage pre-paid, (b) in the case of
overnight mail, one (1) Business Day after being sent by overnight mail, and (c)
in the case of delivery by hand, when delivered. Either party may change its
address for delivery of notices by written notice to the other in the manner set
forth in this Section 17.
18. Costs and Expenses. The Pledgor hereby agrees to pay or reimburse the
Secured Party, on demand, for all reasonable costs and expenses (including
without limitation all reasonable attorneys' fees and disbursements and the
reasonable fees and disbursements of all other experts including without
limitation all accountants and appraisers) incurred by the Secured Party in
connection with preserving, amending, defending, protecting, exercising or
enforcing this Pledge Agreement or any of its rights, remedies and powers
hereunder, or attempting to do any of the foregoing, including without
limitation all reasonable costs and expenses incurred in connection with the
exercise of any right, remedy or power with respect to the Collateral.
19. Integration. This Pledge Agreement represents the entire agreement of
the Pledgor and the Secured Party with respect to the subject matter hereof, and
there are no promises, undertakings, representations or warranties by the
Secured Party relative to the subject matter hereof not expressly set forth or
referred to herein.
20. Gender. Whenever the context herein so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice-versa.
21. Counterparts. This Pledge Agreement may be executed by facsimile and in
one or more counterparts, each of which shall be considered an original but all
of which together shall be deemed one and the same instrument.
22. Governing Law; Jury Trial Waiver.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PLEDGOR
UNDER THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER.
(b) THE PLEDGOR HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY AND
THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR OUT
OF, OR OTHERWISE RELATED TO OR CONNECTED WITH, THIS PROMISSORY NOTE AND/OR THIS
PLEDGE AGREEMENT.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Pledge
Agreement as of the day and year first above written.
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WITNESS:
/s/ Melissa Kratka /s/ Richard H. Friedman, Pledgor
- -------------------------- ------------------------------
Richard H. Friedman, Pledgor
ACCEPTED:
MIM CORPORATION
By /s/ Scott R. Yablon
-------------------------
Its President
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SCHEDULE I
1,500,000 shares of the Common Stock of the Secured Party, par value $.0001 per
share issued to the Pledgor and evidenced by stock certificate numbers 5897
(collectively, the "Specified Pledged Stock").
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MIM CORPORATION
1996 NON-EMPLOYEE DIRECTORS
STOCK INCENTIVE PLAN
As Amended and Restated
Effective March 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 Purpose...........................................................3
SECTION 2 Administration....................................................3
SECTION 3 Eligibility.......................................................4
SECTION 4 Stock.............................................................5
SECTION 5 Granting of Options...............................................5
SECTION 6 Terms and Conditions of Options...................................5
SECTION 7 Option Agreements - Other Provisions..............................9
SECTION 8 Capital Adjustments...............................................9
SECTION 9 Amendment or Discontinuance of the Plan..........................10
SECTION 10 Termination of Plan..............................................11
SECTION 11 Shareholder Approval.............................................11
SECTION 12 Miscellaneous....................................................11
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MIM CORPORATION
1996 NON-EMPLOYEE DIRECTORS
STOCK INCENTIVE PLAN
SECTION 1
Purpose
This MIM CORPORATION 1996 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
("Plan") is intended to provide a means whereby MIM Corporation, a Delaware
corporation (the "Company"), may, through the grant of non-qualified stock
options ("Options") to purchase common stock of the Company ("Common Stock") to
Non-Employee Directors (as defined in Section 3), attract and retain capable
independent directors and motivate such independent directors to promote the
best interests of the Company and of any Related Corporation.
For purposes of the Plan, a Related Corporation of the Company shall mean
either a corporate subsidiary of the Company, as defined in section 424(f) of
the Internal Revenue Code of 1986, as amended ("Code"), or the corporate parent
of the Company, as defined in section 424(e) of the Code. Further, as used in
the Plan, the term "non-qualified stock option" shall mean an option which, at
the time such option is granted, does not qualify as an incentive stock option
within the meaning of section 422 of the Code.
SECTION 2
Administration
The Plan shall be administered by the Company's Compensation Committee
("Committee"), which shall consist of not less than two (2) directors of the
Company who shall be appointed by, and shall serve at the pleasure of, the
Company's Board of Directors ("Board"). Each member of such Committee, while
serving as such, shall be deemed to be acting in his or her capacity as a
director of the Company.
The Committee shall have full authority, subject to the terms of the Plan,
to interpret the Plan, but shall have no discretion with respect to the
selection of Non-Employee Directors to receive Options, the number of shares of
Common Stock subject to the Plan, setting the purchase price for shares of
Common Stock subject to an Option at other than fair market value, the method or
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methods for determining the amount of Options to be granted to each Non-Employee
Director, the timing of grants hereunder or with respect to any other matter
which would cause this Plan to fail to comply with Rule 16b-3(c)(2)(ii) under
the Securities Exchange Act of 1934. Subject to the foregoing, the Committee may
correct any defect, supply any omission and reconcile any inconsistency in this
Plan and in any Option granted hereunder in the manner and to the extent it
shall deem desirable. The Committee also shall have the authority to establish
such rules and regulations, not inconsistent with the provisions of the Plan,
for the proper administration of the Plan, and to amend, modify or rescind any
such rules and regulations, and to make such determinations and interpretations
under, or in connection with, the Plan, as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations shall be binding and
conclusive upon the Company, its shareholders and all Non-Employee Directors
(including former Non-Employee Directors), and upon their respective legal
representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option granted
under it.
SECTION 3
Eligibility
The persons who shall be eligible to receive Options under the Plan shall
be those directors of the Company (the "Non-Employee Directors") who:
(a) are not employees of the Company or any Related Corporation,
(b) have not been employees of the Company or any Related Corporation
during the immediately preceding 12-month period, and
(c) are initially elected to the Board of Directors on or after the
date of the Plan's adoption by the Board of Directors (the "Effective
Date").
-4-
<PAGE>
SECTION 4
Stock
Options may be granted under the Plan to purchase up to a maximum of three
hundred thousand (300,000) shares of the Company's Common Stock, par value
$0.0001 per share, subject to adjustment as hereinafter provided. Shares
issuable under the Plan may be authorized but unissued shares or reacquired
shares, and the Company may purchase shares required for this purpose, from time
to time, if it deems such purchase to be advisable.
If any Option granted under the Plan expires or otherwise terminates, in
whole or in part, for any reason whatever (including, without limitation, the
Non-Employee Director's surrender thereof) without having been exercised, the
shares subject to the unexercised portion of such Option shall continue to be
available for the granting of Options under the Plan as fully as if such shares
had never been subject to an Option.
SECTION 5
Granting of Options
An option to purchase 20,000 shares of Common Stock (as adjusted pursuant
to Section 8) automatically shall be granted to any person on the date he or she
first becomes a Non-Employee Director, whether by reason of his or her election
by stockholders or appointment by the Board to be a director, or, if applicable,
the expiration of the 12-month period specified in Section 3(b) with respect to
a present or future director who had previously been an employee of the Company
or any Related Corporation; provided, that if a Non-Employee Director who
previously received a grant of an Option under this Section 5 terminates service
as a director and is subsequently elected or appointed to the Board again, such
director shall not be eligible to receive a second grant of Options under the
Plan.
SECTION 6
Terms and Conditions of Options
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions:
(a) Number of Shares. A statement of the number of shares to which the
Option pertains.
-5-
<PAGE>
(b) Price. A statement of the Option price which shall be determined
as follows:
(1) with respect to any Option granted on or prior to the
effective date of the Company's initial public offering, if any, the
exercise price shall be the initial public offering price set forth on
the cover page of the prospectus included within the registration
statement for such Offering as of the date it is declared effective
with the Securities and Exchange Commission provided that such
offering is declared effective within ninety days after the grant date
of such Option; otherwise, the exercise price shall be the fair market
value of the optioned shares of Common Stock as determined as of the
date of grant in accordance with Section 6(b)(2)(iv) hereinbelow; and
(2) with respect to any Option granted after the effective date
of the Company's initial public offering, if any, the exercise price
shall be the fair market value of the optioned shares of Common Stock,
which shall be:
(i) the mean between the highest and lowest quoted selling
price, if there is a market for the Common Stock on a registered
securities exchange or in an over the counter market, on the date
of grant;
(ii) the weighted average of the means between the highest
and lowest sales on the nearest date before and the nearest date
after the date of grant, if there are no sales on the date of
grant but there are sales on dates within a reasonable period
both before and after the date of grant;
(iii) the mean between the bid and asked prices, as reported
by the National Quotation Bureau on the date of grant, if actual
sales are not available during a reasonable period beginning
before and ending after the date of grant; or
(iv) if Sections 6(b)(2)(i) through (iii) are inapplicable,
such other method of determining fair market value as shall be
authorized by the Code, or the rules or regulations thereunder,
and adopted by the Committee.
-6-
<PAGE>
Where the fair market value of the optioned shares of Common
Stock is determined under Section 6(b)(2)(ii) above, the average
of the means between the highest and lowest sales on the nearest
date before and the nearest date after the date of grant is to be
weighted inversely by the respective numbers of trading days
between the selling dates and the date of grant (i.e., the
valuation date), in accordance with Treas. Reg. ss.
20.2031-2(b)(1).
(c) Term. Subject to earlier termination as provided in Section 8
hereof, the term of each Option shall be ten (10) years from the date of
grant.
(d) Exercise. Each Option shall become initially exercisable in the
following amounts and upon the following dates provided that the
Non-Employee Director has served continuously as a director of the Company
from the date of grant to and including each such initial exercise date:
(i) as to 6,667 shares, on the first anniversary date of the date of grant;
(ii) as to an additional 6,667 shares, on the later of (A) the first
anniversary date of the grantee's first election to the Board subsequent to
the date of grant or (B) the second anniversary date of the date of grant;
and (iii) as to the remaining 6,666 shares, on the later of (A) the first
anniversary date of the grantee's second election to the Board subsequent
to the date of grant or (B) the third anniversary date of the date of
grant. Any Option shares, the right to the purchase of which has accrued,
may be purchased at any time up to the expiration or termination of the
Option. Exercisable Options may be exercised, in whole or in part, from
time to time by giving written notice of exercise to the Company at its
principal office, specifying the number of shares to be purchased and
accompanied by payment in full of the aggregate price for such shares. Only
full shares shall be issued under the Plan, and any fractional share which
might otherwise be issuable upon exercise of an Option granted hereunder
shall be forfeited.
The Option price shall be payable in cash or its equivalent.
(e) Expiration of Term or Removal of Non-Employee Director as
Director. If a Non-Employee Director's service as a director with the
Company terminates prior to the expiration date of his or her Option for
any reason (such as, without limitation, failure to be re-elected by the
stockholders),
-7-
<PAGE>
such Option may be exercised by the Non-Employee Director, only to the
extent of the number of shares with respect to which the Non-Employee
Director could have exercised it on the date of such termination of service
as a director, at any time prior to the expiration or other termination of
the Option as set forth in Section 6(c) hereof.
(f) Non-Transferability. No Option shall be assignable or transferable
by the Non-Employee Director otherwise than by will or by the laws of
descent and distribution, and during the lifetime of the Non-Employee
Director, the Option shall be exercisable only by him or her or, in the
case of his or her legal disability, by his or her guardian or legal
representative. If the Non-Employee Director is married at the time of
exercise and if the Non-Employee Director so requests at the time of
exercise, the certificate or certificates shall be registered in the name
of the Non-Employee Director and the Non-Employee Director's spouse,
jointly, with right of survivorship. In the event of the Non-Employee
Director's death, the Option may be exercised by the Non-Employee
Director's estate, personal representative or beneficiary if, when and to
the extent that the Non-Employee Director would have been so entitled
hereunder but for such death after giving effect to all the provisions
hereof including Section 6(e) hereinabove.
(g) Rights as a Shareholder. A Non-Employee Director shall have no
rights as a shareholder with respect to any shares covered by his or her
Option until the issuance of a stock certificate to him or her for such
shares.
(h) Listing and Registration of Shares. Each Option shall be subject
to the requirement that, if at any time the Committee shall determine, in
its discretion, that the listing, registration or qualification of the
shares covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such Option or the purchase of shares thereunder, or that
action by the Company or by the Non-Employee Director should be taken in
order to obtain an exemption from any such requirement, no such Option may
be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent, approval, or action shall have been
effected, obtained, or taken under conditions acceptable to the Committee.
Without limiting the generality of the foregoing, each Non-Employee
Director or his
-8-
<PAGE>
or her legal representative or beneficiary may also be required to give
satisfactory assurance that shares purchased upon exercise of an Option are
being purchased for investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
SECTION 7
Option Agreements - Other Provisions
Options granted under the Plan shall be evidenced by written documents
("Option Agreements") in such form as the Committee shall, from time to time,
approve, which Option Agreements shall contain such provisions, not inconsistent
with the provisions of the Plan as the Committee shall deem advisable. Each
Non-Employee Director shall enter into, and be bound by, such Option Agreements.
SECTION 8
Capital Adjustments
The number of shares which may be issued under the Plan, as stated in
Section 4 hereof, and the number of shares issuable upon exercise of outstanding
Options under the Plan (as well as the Option price per share under such
outstanding Options), shall, subject to the provisions of section 424(a) of the
Code, be adjusted proportionately to reflect any stock dividend, stock split,
share combination, or similar change in the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), and, provision is not made for the
continuance and assumption of Options under the Plan, or the substitution for
such Options of new Options to acquire securities or other property to be
delivered in connection with the transaction, the Committee shall, upon written
notice to the holders of Options, provide that all unexercised Options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization, liquidation, sale or transfer unless exercised (to
the extent then exercisable) by the holder within a specified number of days
(which shall not be less than seven (7) days) following the date of such notice.
-9-
<PAGE>
SECTION 9
Amendment or Discontinuance of the Plan
(a) General. The Board from time to time may suspend or discontinue
the Plan or amend it in any respect whatsoever, provided, however, that an
amendment to the Plan shall require shareholder approval (given in the
manner set forth in Section 9(b) below) if such amendment would materially:
(1) increase the benefits accruing to Non-Employee Directors
under the Plan;
(2) increase the number of shares of Common Stock which may be
issued to Non-Employee Directors under the Plan; or
(3) modify the requirements as to eligibility to participate in
the Plan.
The foregoing notwithstanding, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an
outstanding Option without the consent of such holder. Further, the
provisions of this Plan establishing the directors eligible to receive
Options under this Plan, the timing of the grants of such Options, the
purchase price for shares subject to Options, the number of Shares covered
by each Option, the method or methods for determining the amount of Options
to be granted to each Non-Employee Director, and any other provision of the
Plan which, if amended more than once every six months, would cause the
Plan to fail to comply with Rule 16b-3(c)(2)(ii)(B) under the Securities
Exchange Act of 1934, shall not be amended more than once every six months.
(b) Shareholder Approval Requirements. Shareholder approval must be by
either:
(1) the written consent of the holders of a majority of the
outstanding shares of Common Stock complying with the requirements of
the certificate of incorporation and bylaws of the Company and of the
applicable provisions of the Delaware General Corporation Law; or
-10-
<PAGE>
(2) a majority of the outstanding shares of Common Stock present,
or represented, and entitled to vote at a meeting duly held in
accordance with the requirements of the certificate of incorporation
and bylaws of the Company and of the applicable provisions of the
Delaware General Corporation Law.
SECTION 10
Termination of Plan
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on day
immediately prior to the tenth anniversary of the date of the Plan's adoption by
the Board, and no Options hereunder shall be granted thereafter. Nothing
contained in this Section 10, however, shall terminate or affect the continued
existence of rights created under Options issued hereunder and outstanding on
said Plan termination date, which by their terms extend beyond such date.
SECTION 11
Shareholder Approval
The Effective Date of this Plan shall be the date of the Plan's adoption by
the Board; provided, however, that if the Plan is not approved by the
shareholders in the manner described in Section 9(b), within twelve (12) months
after said date, the Plan and all Options granted hereunder shall be null and
void.
SECTION 12
Miscellaneous
(a) Governing Law. The operation of, and the rights of Non-Employee
Directors under, the Plan, the Option Agreements and any Options granted
hereunder shall be governed by applicable Federal law, and otherwise by the
laws of the State of Delaware.
(b) Rights. Neither the adoption of the Plan nor any action of the
Board or the Committee shall be deemed to give any individual any right to
be granted an Option, or any other right hereunder, unless and until the
Committee shall have granted such individual an Option, and then his or her
rights shall be only such as are provided by the Option Agreement.
-11-
<PAGE>
Any Option under the Plan shall not entitle the holder thereof to any
rights as a shareholder of the Company prior to the exercise of such Option
and the issuance of the shares pursuant thereto. Further, any provisions of
the Plan or the Option Agreement with a Non-Employee Director
notwithstanding, the granting of an Option to a Non-Employee Director shall
not entitle that Non-Employee Director to continue to serve as a director
of the Company or a Related Corporation or affect the terms and conditions
of such service.
(c) Indemnification of Board and Committee. Without limiting any other
rights of indemnification which they may have from the Company and any
Related Corporation, the members of the Board and the members of the
Committee shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any claim, action,
suit, or proceeding to which they or any of them may be a party by reason
of any action taken or failure to act under, or in connection with, the
Plan, or any Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit, or proceeding, except a judgment based
upon a finding of willful misconduct or recklessness on their part. Upon
the making or institution of any such claim, action, suit, or proceeding,
the Board or Committee member shall notify the Company in writing, giving
the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his
or her own behalf.
(d) Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to Options granted under the Plan shall
be used for general corporate purposes. Any cash received in payment for
shares upon exercise of an Option to purchase Common Stock shall be added
to the general funds of the Company and shall be used for its corporate
purposes.
(e) No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon a Non-Employee Director to exercise such Option.
* * *
-12-
MIM CORPORATION
1999 CASH BONUS PLAN
FOR KEY EMPLOYEES
Effective March 1, 1999
SECTION 1 - Purpose
This MIM CORPORATION 1999 CASH BONUS PLAN FOR KEY EMPLOYEES (the "Plan") is
intended to provide a means whereby MIM Corporation, a Delaware corporation (the
"Company"), and any Subsidiary or other Affiliate of the Company (as such terms
are defined below) may, through the grant of Bonuses (as defined below) to Key
Employees (as defined below), attract and retain such Key Employees and motivate
them to exercise their best efforts on behalf of the Company and its
Subsidiaries and Affiliates.
As used in the Plan, the following terms shall have the following meanings:
"Affiliate" means any corporation, limited liability company, partnership
or other entity, including Subsidiaries, which is controlled by or under common
control with the Company.
"Bonus" means an award granted to a Key Employee pursuant to Section 4 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Employee" means any employee of the Company or its Subsidairies and
Affiliates (including any directors and officers who also are employees).
"Key Employee" means any Employee who is identified by the Committee (as
defined below) as being instrumental to the success of the Company and its
Subsidiaries and Affiliates and who is designated by the Committee for
participation in the Plan, as provided in Section 4.
"Subsidiary" means any corporation (whether or not in existence at the time
the Plan is adopted) which, at the time a Bonus is granted, is a subsidiary of
the Company under the definition of "subsidiary corporation" contained in
section 424(f) of the Code or any similar provision hereafter enacted.
SECTION 2 - Administration
The Plan shall be administered by the Company's Compensation Committee (the
"Committee"), which shall consist of not less than two (2) non-employee
directors (within the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934, or any successor thereto) who are also outside directors (within
the meaning of Treas. Reg. ss. 1.162-27(e)(3), or any successor thereto) of the
Company who shall be appointed by, and shall serve at the pleasure of, the
Company's
<PAGE>
Board of Directors (the "Board"). Each member of such Committee, while serving
as such, shall be deemed to be acting in his or her capacity as a director of
the Company.
The Committee shall have full and final authority in its absolute
discretion, subject to the terms of the Plan, to select the Key Employees to be
granted Bonuses under the Plan, to grant Bonuses on behalf of the Company, and
to set the date of grant and the other terms of such Bonuses. The Committee may
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and in any Bonus granted hereunder in the manner and to the extent it shall
deem desirable. Notwithstanding the preceding, the Committee shall not have the
power or authority to take any action with respect to a Bonus which is intended
to qualify as "performance-based compensation" within the meaning of section
162(m) of the Code if the taking of such action would cause such Bonus to cease
to so qualify.
No member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Bonus granted hereunder.
SECTION 3 - Eligibility
The class of persons who shall be eligible to receive Bonuses under the
Plan shall be Key Employees. More than one Bonus may be granted to a Key
Employee under the Plan.
SECTION 4 - Bonus Awards
(a) Granting of Bonuses. From time to time until the suspension or
termination of the Plan, the Committee may, on behalf of the Company, grant to
Key Employees such Bonuses as it determines are warranted, subject to the
limitations of the Plan. The granting of a Bonus under the Plan shall not be
deemed either to entitle the recipient to, or to disqualify the recipient from,
any other Bonus award under the Plan or under any other plan. In making any
determination as to whether an Employee shall be considered a Key Employee, as
to whether a Key Employee shall be granted a Bonus and as to the terms and
amount of any such Bonus, the Committee shall take into account the duties of
the Key Employee, the Committee's views as to his or her present and potential
contributions to the success of the Company or its Subsidiaries and Affiliates,
and such other factors as the Committee shall deem relevant in accomplishing the
purposes of the Plan.
(b) Terms and Conditions of Bonuses. Bonuses granted pursuant to the Plan
may be made outright or may be subject to the achievement of such performance
objectives over such period as the Committee, in its discretion, may determine.
Different performance objectives and periods may be established for different
Bonus awards. In its discretion, the Committee may condition the granting of a
Bonus on the execution by the Key Employee of a written agreement containing
such terms and conditions as the Committee deems appropriate.
<PAGE>
(c) Payment. All Bonuses, to the extent earned, shall be paid in cash as
soon as reasonably practicable following the date of grant by the Committee or,
in the case of a Bonus the payment of which is contingent upon the achievement
of performance objectives, upon the Committee's determination that such
objectives have been satisfied within the prescribed period of time.
SECTION 5 - Amendment or Discontinuance of the Plan
At any time and from time to time, the Board may suspend or terminate the
Plan or amend it, and the Committee may amend any outstanding Bonus award, in
any respect whatsoever, except that in the event that Bonuses awarded under the
Plan are intended to qualify as "performance-based compensation" as described in
section 162(m) of the Code, then any amendment to the Plan or to an outstanding
Bonus award which would require shareholder approval pursuant to Treas. Reg. ss.
1.162-27(e)(4), or any successor thereto, to preserve such qualification shall
not be made absent the approval by the affirmative votes of holders of at least
a majority of the shares present, or represented, and entitled to vote at a duly
held meeting of stockholders of the Company. The foregoing notwithstanding, no
such suspension, discontinuance or amendment shall materially impair the rights
of any Key Employee in respect of an outstanding Bonus award without the consent
of such Key Employee.
SECTION 6 - Effective Date
This Plan is effective as of March 1, 1999.
SECTION 7 - Miscellaneous
(a) Governing Law. The Plan, and the Bonus awards granted thereunder, shall
be governed by applicable federal law and otherwise by the laws of the State of
Delaware.
(b) Rights. Neither the adoption of the Plan nor any action of the
Committee shall be deemed to give any individual any right to be granted a
Bonus, or any other right hereunder, unless and until the Committee shall have
granted such individual a Bonus, and then his or her rights shall be only such
as are provided by the Plan and by the Committee in granting such Bonus. No
provision of the Plan or any Bonus shall limit the right of the Company or any
Subsidiary or Affiliate, in its discretion, to terminate the employment of any
Key Employee at any time for any reason whatsoever.
(c) Non-Transferability. No Bonus award shall be assignable or transferable
by the Key Employee otherwise than by will or by the laws of descent and
distribution.
(d) Withholding to Satisfy Tax Obligations. The obligation of the Company
to pay cash to a Key Employee in connection with a Bonus awarded to such Key
Employee shall be subject to applicable federal, state and local tax withholding
requirements.
<PAGE>
IN WITNESS WHEREOF, MIM Corporation has caused these presents to be duly
executed, under seal, this 1st day of March, 1999.
MIM Corporation
By: /s/ Barry A. Posner
--------------------------
Name: Barry A. Posner
Title: Vice President and General Counsel
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<RECEIVABLES> 59,349
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<CURRENT-ASSETS> 71,717
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0
0
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